1975 (5) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Tribunal in restoring the Income-tax Officer's order canceling the renewal of registration.
2. Legality of the firm's constitution and existence of a genuine firm.
3. Jurisdiction of the Income-tax Officer to cancel registration under the 1961 Act instead of the 1922 Act.

Detailed Analysis:

1. Justification of the Tribunal in Restoring the Income-tax Officer's Order:
The Tribunal restored the order of the Income-tax Officer, which canceled the renewal of registration granted to the assessee-firm for the assessment year 1955-56. The Tribunal found that the firm was invalid in law and thus could not be considered to exist in the eye of law. Consequently, the Tribunal held that the Income-tax Officer was justified in canceling the registration as the firm was not genuine.

2. Legality of the Firm's Constitution and Existence of a Genuine Firm:
The assessee-firm consisted of eight partners, including three minors who entered into the partnership through their fathers. The partnership deed made minors liable for losses, contrary to section 30 of the Indian Partnership Act, 1932. The Income-tax Officer found the partnership deed defective and invalid, thus concluding that no genuine firm existed. The Appellate Assistant Commissioner initially set aside the cancellation, stating that the partnership deed's defect did not imply the non-existence of a genuine firm. However, the Tribunal disagreed, emphasizing that the validity of the partnership deed is crucial for the firm's registration under the Income-tax Act. Since the deed was invalid, the Tribunal upheld the cancellation of registration.

3. Jurisdiction of the Income-tax Officer to Cancel Registration:
The assessee contended that the cancellation proceedings should have been conducted under the 1922 Act, as per section 297(2)(a) of the 1961 Act. The Tribunal acknowledged that although the Income-tax Officer cited section 186(1) of the 1961 Act, the power to cancel registration is rooted in rule 6B of the Indian Income-tax Rules, 1922. The Tribunal held that the wrong reference to the provision does not invalidate the order if the power can be justified under the correct jurisdiction. The Supreme Court's observations in similar cases supported this view, stating that actions are not invalid merely due to incorrect reference to the power under which they are taken. The Tribunal concluded that the Income-tax Officer had the jurisdiction to cancel the registration under rule 6B, and the assessee was not prejudiced by the reference to section 186(1) of the 1961 Act.

Conclusion:
The Tribunal was justified in restoring the Income-tax Officer's order canceling the renewal of registration for the assessment year 1955-56. The partnership deed was invalid, and thus, no genuine firm existed. The Income-tax Officer had jurisdiction to cancel the registration under rule 6B of the 1922 Rules, despite the incorrect reference to section 186(1) of the 1961 Act. The question of law was answered against the assessee and in favor of the revenue.